Advanced Audit and Assurance

The Advanced Audit and Assurance segment provides practical and technical knowledge for candidates to understand the nature and diversity of audit and assurance engagements. The segment provides an insight on audit and assurance processes, the methodologies and procedures. It also examines the objectives of assurance engagements and current and future developments in assurance engagements. The environment within which the auditor or assurance practitioner operates and the respective roles of the private and public sector auditors and internal audit are also included.

The professional responsibilities of accountants including auditors are discussed in the Ethics and Governance segment. However, the Advanced Audit and Assurance segment emphasises the ethical and professional conduct required by auditors. The strategic business analysis techniques in the Advanced Audit and Assurance segment are further discussed in the Strategic Management Accounting and Global Strategy and Leadership segments in their respective context.

This segment and the Contemporary Business Issues segment also cover sustainability reporting and assurance with emphasis on businesses. Advanced topics in financial reporting which provide accounting knowledge required by audit professionals are included in the Financial Reporting segment, and accounting for financial instruments is also discussed in the Financial Risk Management segment.

The international convergence of auditing standards including the clarity project undertaken by the standard setters led to uniformity in audit practices with audit professionals well-positioned to operate in a global economy. Candidates of this segment are introduced to international pronouncements including the international standards for audit, review and assurance engagements, the standard on quality control for audit firms and the code of ethics. Candidates are taken through case studies to illustrate the strategic approach in audit engagements. Contemporary developments in assurance engagements are discussed in this segment in the context of future practice management opportunities.

This segment is compulsory for candidates who have not completed studies in auditing at undergraduate level.

Segment aims

The aims of this segment are:

• to provide candidates with requisite knowledge and skills, and to develop awareness of ethics, values and attitudes expected of audit professionals performing audit and assurance engagements anywhere in the world
• to engage candidates on current and future developments in assurance engagements.

General objectives

On completion of this segment, candidates should be able to:

• understand and apply the framework for assurance engagements in audit and review engagements, and assurance engagements (other than audits or reviews), and discuss the elements of an assurance engagement
• discuss the quality control standards for audit and assurance engagements, and the fundamental ethical principles for the auditing profession
• explain and apply the requirements of the audit, review and assurance standards that are applicable to audit and review engagements and assurance engagements (other than audits or reviews)
• design the audit process to be undertaken by auditors in conducting audit and assurance engagements
• apply the relevant auditing standards to the assessment for fraud and going concern in an audit of financial statements
• explain the purpose and role of performance audits
• identify and describe the various types of assurance engagements
• discuss the nature of internal audit

Segment content

Module 1: Assurance services framework

Module 1 discusses the framework for assurance engagements. Within this framework, the module considers in detail audit and review engagements and assurance engagements (other than audits or reviews). The module also considers other frameworks such as those for internal controls and risk management as developed by the Committee of Sponsoring Organizations (COSO). The module distinguishes between reasonable assurance engagements and limited assurance engagements. The issue of ‘judgment’ in assurance engagements and the important role it plays is also highlighted.

The ethical requirements for professional accountants under the Code of Ethics for Professional Accountants and the quality control requirements for firms that perform audits and reviews under ISQC 1 Quality Controls for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements are discussed. The module also discusses the environment, role and relationships relevant to the external auditor of the public sector.

Contents:

• International Auditing and Assurance Standards Board (IAASB)
• Australian Auditing and Assurance Standards Board (AUASB)
• Types of assurance engagements: Reasonable versus limited, direct versus attestation  
• Elements of an assurance engagement
• Using the assurance framework: Financial statements audit
• What is audit quality?
• Audit judgment
• Review engagements 
• Establishing criteria
• Code of Ethics for Professional Accountants
• Quality controls for firms that perform audits and reviews
• Public sector perspective

Module 2: General audit principles and auditor responsibilities

Module 2 builds on the material in Module 1 and focuses on reasonable assurance engagements in the form of an audit of financial statements, specifically the ISA 200 General Principles and Responsibilities series of auditing standards. The ISA 200 series covers the objectives of an audit of a financial statement through to communicating audit matters to those charged with governance and management.

Many of the matters discussed in these and some of the intervening standards, ISA 210 Agreeing the Terms of Audit Engagements, ISA 220 Quality Control for an Audit of Financial Statements, ISA 230 Audit Documentation and ISA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements are elaborated upon in terms of ethical considerations in the Code of Ethics for Professional Accountants and the quality control requirements in ISQC 1 Quality Controls for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.

Contents:

• Clarity standards
• Overall objectives of the independent auditor and the conduct of an audit in accordance with international standards on auditing
• Terms of audit engagements
• Quality control for audits
• Audit documentation
• The auditor's responsibility to consider fraud in an audit
• Communication of audit matters with those charged with governance
• Communicating deficiencies in internal control to those charged with governance and management

Module 3: Understanding the entity, assessing risk and responding to risks

Module 3 discusses auditing standards related to risk assessments. The module starts with a discussion of audit planning as per ISA 300 Planning an Audit of Financial Statements. Particular emphasis is placed on ISA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment. The module introduces the concept of business risk, its impact on the auditor’s knowledge and understanding of a client and the risk of material misstatement in the financial statements.

There is also an overview of techniques for gaining an understanding of the entity and its environment, including a discussion of analytical procedures. Emphasis is placed on techniques used in strategic analysis to identify business risks. As internal control is a means of mitigating business risk, this module examines the components of internal control using the framework set out in ISA 315. The impact of an information technology environment on internal controls is also considered. Having assessed risks it is necessary for the auditor to respond to those risks and this is discussed as per ISA 330 The Auditor’s Responses to Assessed Risks.

Contents:

• Overview of standards covering risk assessment and response to assessed risks
• Planning an audit of financial statements
• Audit materiality
• Financial statement assertions
• Identifying and assessing the risks of material misstatement through understanding the entity and its environment
• Strategic analysis
• Techniques used in strategic analysis
• Analytical procedures
• Responding to assessed risks
• Evaluation of misstatements identified during the audit

Module 4: The auditor's response to assessed risks

Module 4 discusses the auditor’s response to the assessed risks stage of the audit process (commonly referred to as the evidence-gathering stage of an audit, as gathering evidence is the way in which the auditor assesses risks). The module looks at the two major classes of audit procedures, namely the tests of control and substantive tests. It also examines the auditor’s response to assessed risks in the specific environments of e-commerce and small business.

With the increased use of information technology (IT), the efficiency and effectiveness of audits has increased significantly as auditors have discovered the benefits of using computers as audit tools rather than objects of the audit. The module also examines the general principles underlying evidence-gathering for tests of control and substantive procedures, and evidence-gathering techniques used in an IT environment.

Contents:

• Sufficient appropriate audit evidence
• Tests of control
• Substantive audit procedures
• Advanced evidence-gathering issues
• Using the work of other auditors and experts
• Evidence-gathering in an e-commerce environment
• Audit of small businesses
• Subsequent events
• Completion

Module 5: Audit conclusions and reporting requirements

Module 5 discusses the various forms of reporting associated with different types of engagements and the levels of assurance obtained and communicated for each type of assurance engagement. Auditors’ reports which provide a reasonable level of assurance to users are examined in detail, including their form and content and the different types of opinion that are issued under varying circumstances. The module also identifies the legal and professional requirements for audit and review reporting in Australia as specified by the Corporations Act 2001 (Cwlth).

The module further discusses other types of reporting and classifies engagements and their consequent reports by the level of assurance they purport to provide. These include review reports used for obtaining and communicating limited assurance, and reports on agreed-upon procedures where no assurance is explicitly communicated. The reports provided by the external auditor of the public sector are also discussed.

Contents:

• Reports associated with reasonable assurance engagements
• Reports providing limited assurance
• Reports providing no assurance

Module 6: Undertaking an audit of financial statements

Module 6 works through an extensive case study designed to illustrate the activities performed by the auditor in undertaking an audit of financial statements. Candidates are guided through the various stages of the audit process to consolidate their understanding of the audit principles and the ethical considerations covered in Modules 1 to 5.

Contents:

• Client continuance
• Ethical considerations
• Identifying and assessing the risks of material misstatement through understanding the entity and its environment
• Assessing the risk of material misstatement in the sales, accounts receivable and cash receipts system
• Responding to assessed risk of material misstatement in the sales, accounts receivable and cash receipts system
• Completing the audit and audit reporting considerations

Module 7: The auditor's responsibilities relating to fraud in an audit of financial statements

Module 7 is an extensive case study designed to illustrate the auditor’s responsibility to consider fraud in an audit of financial statements. This is appropriate, not only because of the importance of considering fraud, but because the requirements of ISA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements need to be considered at all stages of the audit process.

Contents:

• Fraud
• Responsibilities of those charged with governance and of management
• Auditor's responsibilities for detecting material misstatements due to fraud
• Engagement team communications
• Risk assessment procedures
• Identification and assessment of the risks of material misstatement due to fraud
• Response to assessed risks of material misstatement due to fraud
• Management representations
• Communications to management and with those charged with governance
• Auditor unable to continue the engagement
• Communications to regulatory and enforcement authorities

Module 8: The auditor's responsibility to consider the going concern assumption in the audit of financial statements

Module 8 considers the identification, evaluation of and the auditor’s response to management’s use of the going concern assumption in preparing the financial statements. The module works through an extensive case study designed to illustrate the auditor’s responsibility to consider going concern in an audit of financial statements.

Contents:

• What is the going concern assumption?
• Responsibilities of management
• Auditor's responsibilities
• Planning the audit and performing risk assessment procedures
• Additional audit procedures when identified events or conditions cast significant doubt on an entity’s ability to continue
• Audit conclusions and reporting
• Communications with those charged with governance
• Other reporting considerations - Insolvent trading

Module 9: Performance engagements

Module 9 explains in detail the nature, purpose and practice of performance audits, which are concerned with the review of an entity’s activities to assess for economy, efficiency and effectiveness. The various stages of conducting a performance audit are discussed; they represent generally accepted practice both within Australia and internationally, and are applicable to performance engagements in the public and private sectors.

Contents:

• Background
• Performance engagements - Definition and scope
• Understanding performance audits
• Accountability and audits
• Independence and quality controls
• Policy issues
• How are performance audits selected?
• Examples of performance audits
• Economy, efficiency and effectiveness
• Audit criteria
• Audit considerations
• Techniques for examining economy, efficiency and effectiveness
• Performance indicators
• The performance audit process
• Performance audit on the auditor-general's office

Module 10: Other assurance services and internal audit

Module 10 considers other assurance engagements such as assurance on prospective financial information, non-financial information, sustainability assurance, assurance engagements on systems and processes, and behaviour such as compliance with law and regulations, and corporate governance. The module also discusses the concept of continuous auditing and gives an overview of the implications of new assurance services for professional competencies and independence. Finally, the module considers the role of internal auditors and the internal audit function.

Contents:

• The nature and characteristics of assurance services
• Assurance on prospective financial information
• Assurance on non-financial information: Environmental and sustainability assurance
• Assurance on non-financial information: Business performance measurement
• Assurance on systems and processes
• Assurance on behaviour
• Continuous auditing
• Core competencies for potential assurance services
• Internal audit